Global exchange-traded fund (ETF) provider VanEck will release a new vehicle that will offer fixed-rate exposure to its subordinated bond investments via a listed product.
The VanEck Australian Fixed Rate Subordinated Debt ETF, trading und the Australian Securities Exchange (ASX) code: FSUB, will be available from 12 December as part of the firm’s fixed-income suite of funds and will leverage off the strategy underpinning the VanEck Australian Subordinated Debt ETF (ASX: SUBD) released in 2019.
SUBD offers investors access to floating-rate subordinated bonds issued by financial institutions and has grown to more than $3 billion in assets, with the FSUB ETF offering a fixed-rate exposure within the same regulatory capital framework.
VanEck Asia-Pacific chief executive Arian Neiron said the launch of FSUB was based on the growth of the Australian subordinated debt market, which is currently $70 billion, with nearly half of new issuances being fixed rate.
“The Australian Prudential Regulation Authority’s mandated total loss-absorbing capacity requirements for banks and other authorised deposit-taking institutions are driving continued Tier 2 issuance and the imminent phase-out of hybrid securities has accelerated the structural shift towards subordinated debt,” Neiron explained.
“Financial institutions have shifted Tier 2 capital issuance to both floating and fixed rate to accommodate increased investor appetite for defined income and duration exposures.
“With the Australian yield curve steepening recently and the 10-year bond yield at a 12-month high, we think FSUB is well positioned, offering investors the opportunity to access a fixed-rate bonds portfolio that is currently yielding around 5.7 per cent.”
The launch of FSUB will bring VanEck’s total number of ETFs on the ASX to 48.
